Weighing in the Pros and Cons of a Health Savings Account

In this article, you will find a discussion of the advantages and disadvantages of health savings accounts, which will help you make a decision.

HealthHearty Staff

Last Updated: Apr 22, 2018

Of the many health care related provisions made by the US government, in the past decade, one that stands out is the creation of a 'Health Savings Account' (HSA), through an act passed by President George W. Bush, in 2003. It is an effective alternative to costly health insurance, which has gone a long way in empowering low-income families, to pay for their health care needs.

Just like an IRA (Individual Retirement Account), an HSA is a bank account, in which you can save money, for your future medical expenses. The money you contribute to the account is tax deductible and can keep rolling over, year after year, to grow as an investment.

According to the associated rules, only individuals holding a 'High Deductible Health Plan' (HDHP) and with no other prominent health care insurance plans to cover them, can open such an account, for themselves or their family. The Internal Revenue Service (IRS) puts restrictions on the amount of maximum contributions that can be made to an HSA every year, for a self-only, or family account.

Here is a discussion about the pros and cons of opening such an account, which will help you make an informed decision about them.

Pros

The prime advantage of having a health savings account is that the contribution made to it are entirely tax deductible, and keep growing, year after year. After 55 years of age, you are allowed to make extra contributions to the account. Another pro is the complete control they give you over how and where your medical expenses are spent. For people who cannot afford high premium health insurance plans, HSA is an excellent alternative, along with a high deductible health plan.

Another advantage is the fact that your employer can choose to contribute to your HSA and there is no restriction on who deposits money in the account, as long as it's within the contribution limit. This makes it an ideal choice for employers too.

Cons

One of the disadvantages is the penalty imposed, if money is withdrawn from the account for non-medical purposes. If you have a high risk of medical conditions, developing in the future, or have dependents with a high medical risk, opting for an HSA, may not be a smart move, as you may not save much, due to recurrent medical expenses. In such a case, going for a health insurance plan, with greater coverage, would be a smarter move.

HSAs provide you with greater control over your medical savings, and they are tax deductible. So you can pay for out-of-the-pocket medical expenses through them and once you cross the deductible amount, you can pay using your Highly Deductible Health Plan (HDHP).

Before choosing to open such an account, make an estimate of your expected medical expenses for the future and determine if an HDHP, along with an HSA, can effectively cover these expenses. If you think that it will indeed provide adequate coverage, go for it. Otherwise, I suggest that you explore other health care insurance plans.